Question

Which of the following portfolios cannot be an optimal portfolio? Portfolio Expected Return Standard Deviation X...

Which of the following portfolios cannot be an optimal portfolio?

Portfolio Expected Return Standard Deviation
X 10% 15%
Y 10% 25%
Z 15% 25%

Portfolio Y and Portfolio Z

Portfolio X and Portfolio Y

Portfolio Z

Portfolio Y

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Answer #1

Correct answer: Portfolio Y

An optimal portfolio is an efficient portfolio. Efficient portfolio provides highest possible return at given level of risk (Standard deviation).

In given case, Portfolio Y and Portfolio Z has same level of risk (i.e 25%) but Portfolio Y provides lower return for this level risk Thus, Optimal is not efficient portfolio and can not be an optimal portfolio.

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